ROI Alone Cannot Win the Day

Written By Ted Grigg

The reality is that evaluating marketing efforts on Return On Investment alone guarantees its destruction.

This sounds like an irrational statement -- especially coming from a direct marketer who makes a living making money by using accountable advertising.

But hear me out.

The flow chart (below) lays out a past test. Of the four test cells (in purple) representing 200,000 prospect names each, can you guess which cell won on ROI?

DMCG Results

Flowchart showing test program with 4 tests (includes 1 control cell)

It was the holdout cell number 1, of course. By not spending money, the client had far fewer contracts, but it costs him nothing to acquire the customers who came in without the benefit of advertising support.

When cutting the budget to zero, there is an immediate increase in profitability.

But it comes at the expense of loosing market share and revenue volume. Customers still come in for awhile based on the company's past branding and promotional efforts. But creaming the business in this manner comes at the expense of longterm growth.

This shows why client management with a short timeframe mentality so readily targets the marketing budgets for cuts when the pressure is on.

Even though the observations here may be obvious to some. It clearly illustrates the need to look beyond ROI alone when developing marketing budgets. It also emphasizes the need to look beyond 1 year, 3 months or even 30 days when establishing the marketing investment.

We need leaders (and followers) who see the value of the long term marketing strategy.

What experiences have you had with this underlying weakness in many US businesses today? In your opinion, has this mentality taken over much of America today?

Ted Grigg

Ted Grigg is a direct response strategist who helps growth-focused companies reduce risk by identifying weak assumptions before they become costly mistakes.

Over the course of his career, Ted has evaluated several hundred million dollars in direct response testing across direct mail, digital, print, television, telephone, and other channels. His work combines direct response strategy, acquisition economics, customer analysis, creative evaluation, offer development, and disciplined testing.

Ted has worked on both the client and agency sides of the business. That experience gives him a practical understanding of the pressures facing executives, marketing teams, agencies, and service providers—and of the problems that arise when activity, media volume, or creative preference replaces a clear economic objective.

His consulting work helps organizations examine such questions as:

  • Are acquisition goals economically realistic?

  • Is the allowable Cost Per Sale supported by customer value?

  • Are targeting, offers, creative, media, and response paths working together?

  • Are tests structured to produce reliable business decisions?

  • Are unproven assumptions being treated as facts?

  • Is the organization measuring sales outcomes rather than convenient proxies?

Ted’s experience includes the development of direct mail and multichannel acquisition programs for insurance, healthcare, financial services, technology, nonprofit, manufacturing, retail, transportation, communications, government, and business-to-business organizations.

For a national direct-to-consumer insurance company, he developed a direct mail format that defeated established controls and helped expand the productive use of compiled prospect lists from less than 10 percent to more than 30 percent of total direct mail circulation within one year. He also planned Medicare lead-generation programs for more than 60 regional and national HMO and PPO organizations, with some programs exceeding sales projections by as much as 60 percent.

Ted founded Wyse Direct, a direct marketing division of Wyse Advertising in Cleveland, where he developed acquisition programs and helped launch a new technology product for Seiko Instruments by generating a predictable flow of qualified sales leads for its national sales organization. As vice president of new business development for the Grizzard Agency, he helped broaden the agency’s strategic capabilities and pursue new commercial and fundraising opportunities.

He is the author of The HMO/PPO Marketing Plan—A Step-by-Step Guide, published by Executive Enterprises, and has written numerous articles and conducted webinars on direct response strategy, testing, creative development, and marketing economics.

Ted earned a Bachelor of Arts degree from Abilene Christian University and completed two years of graduate study at Texas Tech University. He is the founder of DMCG, LLC.

http://www.dmcgresults.com
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